Oil Price Forecast: Set for Second Weekly Gain Amid Strong Demand

Highlights

• WTI crude oil prices on track for a second consecutive weekly gain, rising approximately 2%.
• Robust demand and larger-than-expected drop in US oil inventories support bullish outlook.
• OPEC’s additional output cuts and positive oil demand growth forecast contribute to the optimistic sentiment.

Overview

US West Texas Intermediate (WTI) crude oil prices are set for a second consecutive weekly gain as robust demand and a larger-than-expected drop in US oil inventories offset concerns over higher interest rates. The US benchmark is on track to rise around 2% for the week. The outlook for crude demand is improving, particularly with the arrival of peak summer travel in the US. Additionally, Saudi Arabia’s ability to raise prices in Europe and Asia further supports the positive sentiment.

EIA Report Signals Strong Refining Demand

According to the Energy Information Administration (EIA), US crude stocks recorded a larger-than-expected decline due to strong refining demand, while gasoline inventories experienced a significant draw following increased driving activity. These factors contribute to the bullish outlook for oil prices.

Gains Limited by Rate Hike Fears

However, the gains in oil prices are being limited by growing expectations of an interest rate hike by the US Fed at its upcoming meeting in July. The possibility of higher interest rates raises concerns about economic growth and, subsequently, oil demand. New claims for unemployment benefits moderately increased, while private payrolls surged in June, indicating mixed signals for the economy.

Saudi, Russian Output Cuts Supportive

In an effort to support oil prices, top exporters Saudi Arabia and Russia announced additional output cuts for August. OPEC and its allies cut oil production by around five million barrels per day, equivalent to 5% of global output. Sources indicate OPEC’s positive outlook on oil demand growth for the upcoming year.

Next week, investors will closely monitor US and Chinese inflation data for insights into potential rate paths. These indicators will provide valuable cues for the future direction of oil prices.

Short-Term Outlook:  Optimistic Sentiment

In summary, WTI crude oil prices are set for a second consecutive weekly gain driven by resilient demand and a significant drop in US oil stockpiles. Despite concerns over higher interest rates, the outlook for crude demand remains positive, supported by increased summer travel and pricing actions by Saudi Arabia. OPEC’s ongoing output cuts and an optimistic view on oil demand growth further contribute to the bullish sentiment. However, investors will carefully watch economic data and inflation figures for potential impacts on rate decisions and oil prices in the short term.

Technical Analysis

WTI Crude Oil market sentiment leans slightly bullish as the current 4-hour price of 72.17 hovers above both the 200-4H and 50-4H moving averages. The 14-4H RSI reading of 59.25 indicates positive strength. However, the price sits within striking distance of the main resistance area of 72.75 to 73.55, suggesting potential hurdles.

While the market experienced a slight downward movement from the previous close, the overall trend remains positive. Traders should closely monitor price action to confirm the bullish sentiment and evaluate the market’s ability to break through resistance levels.